Oil Prices Plunge With News of Worsening Supply Imbalance

Oil futures prices (WTI) plunged 12.5% this week from $47.90 on Friday, November 3 to $41.96 this morning Wednesday, November 11. The main reason is that the global supply imbalance is getting worse.

The U.S. Energy Information Administration’s (EIA) latest report indicates that the world supply surplus (production minus consumption) increased 590,000 barrels per day (bpd) compared to September to 1.58 million bpd (Figure 1).

Chart_Prod-Cons-Surplus_November 2015
Figure 1. World liquids production, consumption and relative surplus or deficit.
Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Supply was flat but consumption decreased 520,000 bpd. Weaker consumption suggests weakening demand, a disturbing trend that is also evident in year-over-year consumption-change data (Figure 2).

Chart_YOY Cons November 2015

Figure 2. World year-over-year liquids consumption change.
Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

Only OPEC and IEA estimate global oil demand. The OPEC Monthly Oil Market Report released today shows world oil demand growth of 1.6 million bpd so far in 2015 (Figure 3) but decreasing to 1.5 million bpd overall for the year and only 1.25 million bpd for 2016. OPEC data indicates about 1 million barrels of surplus supply relative to demand.

Supply-Demand Growth Chart from MOMR_November_2015
Figure 3. Supply/demand growth for first three quarters 2015, mb/d. Source: OPEC November 2015 Monthly Oil Market Report.
(click image to enlarge)

The EIA also revised the decline in U.S. crude oil production to 490,000 bpd since April (Figure 4) from its estimate last month of 590,000 bpd.

U.S. Crude Oil Comparative Inventory, WTI Price in 2015 Dollars & Money Supply_OCT 2015
Figure 4. U.S. crude oil production and forecast. Source: EIA and Labyrinth Consulting Services, Inc.
(click image to enlarge)

The good news is that the EIA forecasts an ongoing decline in U.S. oil production of more than 1 million bpd by September 2016.

Overall, the outlook suggests a persistant market imbalance. Supply growth has stopped but remains higher than demand and the forecast is for weaker demand growth going forward. The only near-term hope for improved prices, therefore, is a decline in world production of about 1 million barrels per day. Falling U.S. production will help move fundamentals toward balance but represents too little decline over too long a period to bring price relief any time soon.

Last week, Daniel Yergin and Andy Hall predicted that oil prices had reached a bottom. I fear that their optimism is based on sentiment. Although it makes sense that lower oil prices should result in increased demand, data offers little encouragement so far.

A weak global economy that is over-loaded with debt is a powerful obstacle to oil-demand growth. Only the pain of lower prices will force global producers to reduce supply enough to create an oil-price recovery.


  • I love this chart as it get to the heart of the matter and something I have been talking to the Industry about for the last few months. Here is my take on global supply and demand and price depression will continue for as long as production outpaces world demand. This surplus is not going to be absorbed by increased demand it needs to come from production cuts.

    • Arthur Berman


      Our views are the same. Demand is complicated to measure and predict. I would love to see demand increase but that’s not what the data suggests so far. I fear that the global economy is too weak to support much growth in commodities that got so much over-investment in recent years. All the tinkering with interest rates and money supply have come back to haunt us with weak demand.

      All the best,


  • We now live in a deflating global economy, one in which the net supply of willing oil buyers is contracting faster than the net reserves offered by willing suppliers. Global deflation has made the next tight market impossible to predict, as I imagine a lot unhappy shale investors who anticipated a fast return tight market learned earlier this year.

    There can be no market discovery so long as oil is being sold far below its real production cost. Shale drilling and other high price non-conventional oil investments largely amount to stranded capital in a contracting and now restructuring global economy. In our earlier 1970s energy crisis, we saw rising energy costs exhibited as stagflation, some economic stagnation together with a lot of commodity price inflation. This time see a similar unresolved underlying contradiction, but now primarily seen as economic stagnation and contraction.

    I heard a recent James Howard Kunstler podcast interview with Gail Tverberg in which he put the situation quite succinctly, IMO. He said that a sustained oil price under $75 a barrel breaks oil companies. But a sustained oil price above $75 breaks economies. I would add that of these two options, economies are harder to fix.

    — Roger, Austin

  • Art, in my last couple of Vital Statistics updates I’ve drawn attention to a head and shoulders pattern developing on the oil price chart. This week’s action sees that almost complete. The neck line for WTI is about $38 and Brent about $42. If these support levels do not hold, then it is a long way down to next support that I estimate to be around $20.


    • Arthur Berman


      I subscribe to and read your blog. I agree with your analysis of where oil prices are and may go and your work has influenced my own.

      Many thanks for your comments,


  • William E

    “All the tinkering with interest rates and money supply have come back to haunt us with weak demand”

    Good insight Arthur.
    The demand side is gone for a very long time,too much Keynes,too much Krugman,too much debt,too much QE.
    It is beyond repair,no matter what anyone promises,the crisis is just starting.

  • William E

    By the way,Merkel’s little exercise in humanitarian aid will exceed EU’s GDP.
    Don’t expect any economic growth in Europe soon.

  • Ryan Cobb

    We are at the “white dwarf” stage of an easy credit-fueled monetary experiment but in the words of former Citigroup CEO Chuckie Prince…” ” When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

    The failure of central planners to stop the market manipulation has caused some serious carnage. Perhaps SA is smarter than we give them credit for. As Art has succinctly pointed out, their bone to pick seems to be with the capital markets. Some signs of a breaking point are surfacing. Stock buy-backs are trailing off compared to assumed corporate debt.

    The crude complex seems stuck in a ugly market overhang. 38.5 acted as a hard floor last time. Traders have been determined to re-test. This looks like the week. I can almost see the line of tankers stacked up in the gulf from my office window.

    I don’t believe we will see $20. Mostly thin air under 38.5 but traders and storage bidders will get their contango arbitrage point at $38. I will re-load on USO call options.

  • Heinrich Leopold


    Given your forecast of future US oil production I am wondering if you are a little bit over-optimistic. According to the EIA November drilling report the monthly decline rate of Eagle Ford stands at currently -71000 bbl/dand month. The total shale decline has accelarated to 118 000 bbl/d and month, which is annualized for shale alone around 1,5 mill/d. As also conventional oil will start its decline by next year, the overall decline could be far over 2 mill bbl/d. In my view there is mounting evidence that the US decline rates are accelerating, which is not built into most forecasts.

    • Arthur Berman


      I don’t know what production forecast you refer to. The single prediction that I made early this year suggested about 500,000-600,000 bopd decrease by mid-year. I was obviously correct notionally but premature in the timing.

      I think the point is that the decline in U.S. production will not be enough soon enough to affect world oil prices much. I stand by that. If U.S. production falls more, that will be great. If I’m wrong, that will also be great. I’m just trying to provide an objective view based on what we’ve seen so far.

      All the best,


  • john

    There was talk that since the Russians got involved in Syria, the Saudis will punish them by increasing oil production. I guess we will have to wait and see if this is going to happen.

    • Arthur Berman


      Russia increased production 80,000 bpd in October compared to August whereas Saudi Arabia decreased production 30,000 bpd over the same period–for what it’s worth.

      All the best,


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